Tag Archives: Imported

Notes on a health reform plan

Berkeley economist Brad DeLong offers a qualified (“coming from a guy who is not a real health economist but has an undeserved reputation because he was good at translating the economese spoken by real health economists”) proposal for health care reform. Here are the highlights:

  • 20% Deductible/Out of Pocket Cap
  • Single-Payer for the Rest
  • Sin Taxes [and public-health education, exhortation, etc.]
  • Serious Research on Best Public-Health, Chronic-Disease, and Hospital Practices

Here’s what’s good, what’s bad, and what can be improved:What’s good?

  • Single payer for the rest. Much of the current health care mess in the U.S. comes directly from the competitive private insurance market. Insurance companies reap rewards for avoiding sick patients and have little incentive to provide continuity of care (follow-up on patients with chronic illness, preventative care, etc.). Administrative costs and profits are also ridiculously high. Single payer, which means that the government or a quasi-governmental trust is the unique, universal insurer, is the obvious solution, a proven winner in one form or another in almost every other industrialized country.
  • Serious research (and development). Medical and information technology could be applied much more effectively to monitor and to ameliorate chronic diseases and other health risks. We can learn more at the cutting edge, we can better disseminate and reward the adoption of demonstrated good practices, and we can help people monitor and improve their own health (while respecting their privacy).

What’s bad?

  • 20% Deductible/Out of Pocket Cap. DeLong’s proposal would tax 20 percent of income for health care: 15 percentage-points worth would go into a personal health-spending account and 5 percentage-points worth would go into a health insurance pool. The phrase “for the rest” following single payer means that complete insurance would apply all health care problems in excess of 15 percent of income. At least there would be some means testing but there is little else to recommend this proposal. The impetus for high deductible is that patients should be encouraged to shop around and competitive pressures will contain costs. Otherwise, patients, or more likely their providers, face a moral hazard to overuse care. Some so-called cost sharing is compatible with single-payer, but here’s the problem. The 5 percentage points of income isn’t enough to provide insurance to people who need it. Health problems and the associated costs come in very concentrated bursts. According to the director of social scientific research at the Federal agency responsible for health research (AHRQ), “Nearly 30 percent of health care expenditures are accounted for by the top 1 percent of spenders, while more than half of all health care expenditure are accounted for by the top 5 percent of spenders.” Because health-care expenditure is about 16 percent of all income, the top 1 percent of spenders alone use up almost the entire 5-percent insurance pool (because 30 percent of 16 percent is 4.8 percent). There is essentially nothing left to pay for unexpected health care needs for the other 99 percent of the population beginning with the next sickest 4 percent. So we don’t need to debate the morality or excoriate the immorality of the “first out-of-pocket, and only then insurance” approach. Nor do we need to offer (perfectly reasonable albeit difficult to defend) opinions such as, “No one gets excess health care for fun.” Health care costs cannot be contained by widespread cost-sharing because of their fundamental distribution.

What can be improved?

  • Sin Taxes [and public-health education, exhortation, etc.] Reinvigorating the public-health approach makes lots of sense. DeLong smartly suggests increasing the employment, skills, and portfolio of nurses, other primary-care providers, health educators, health-care paraprofessionals, nutritionists, et al. A lot of the public-health problem may come from the time bind that Americans face. When the health educator knocks at the door (see the proposal), will anyone be home? We are more likely to be commuting, alone, in a car, to a distant job with long hours. The proposed sin taxes should include unequal incomes and long hours. And public health should include a vacation.

Education is not a cure for inequality or poverty

In his column today, David Brooks furthered the argument that education is the key to reducing inequality, improving one’s lot, etc, etc. He says that

“when you look at the details, you find that most
inequality is caused by a rising education premium, by changes
in household and family structure, by the fact that the rich now
work longer hours than the less rich and by new salary structures
that are more tied to individual performance.”

He argues for a lot of swell policies that would make a difference in a
lot of people’s lives. But he (along with so many other intelligent people) overlooks a tragic flaw in this argument: while a better education will certainly benefit any given individual, that does not mean that better educations for everyone will benefit everyone. A little thought experiment might make this point clearer. Read more

Econ-Atrocity: Profits over Pets

By Helen Scharber, CPE Staff Economist

Last month, the recall of 60 million cans and pouches of pet food by Menu Foods left Americans concerned and confused. The pet deaths and illnesses that spurred the recall have since been linked to melamine, a chemical added to animal feed in China to boost its reported protein content. Melamine is not digested in the same way as vegetable protein, however, and therefore lacks nutritional value. Why, then, are Fluffy and Fido eating it? In short, because companies value profits over pets. Using melamine increases profits by lowering costs, and without effective regulation, the drive for profits tends to trump other concerns, including human and animal health.

Melamine is a hard, white, coal-derived substance used primarily to make fertilizer and plastics. You may have melamine bowls or plates in your house; a warning on the bottom declares them unfit for use in microwaves or dishwashers, since high temperatures can cause the plastic to break down and contaminate your food. Animal feed manufacturers in China buy scrap melamine cheaply and add it to feed in order to boost its nitrogen content, which inflates protein levels in tests. According to a Chinese animal feed factory manager interviewed in the New York Times, “If you add it in small quantities, it won’t hurt the animals.” He goes on to justify the substitution of vegetable protein with melamine’s indigestible protein. “Pets are not like pigs or chickens”¦ they don’t need to grow fast.” Profits, he might have added, do need to grow fast, and substituting melamine, at one-fourth the cost of vegetable protein, helps profits grow.

The pet food recall case illustrates the problems that can spring from increasing globalization paired with poor regulation. While the use of melamine in food is prohibited in the United States, it isn’t in China. Because it reduces costs and has the added benefit of beefing up advertised protein levels, Chinese manufacturers use it as a filler, despite its total lack of nutritional content and poorly understood health effects.

The contaminated feed makes its way into the U.S. via companies like ChemNutra, the American importer that supplied the contaminated wheat gluten to Menu Foods. Steve Miller, the chairman of ChemNutra, claims that his company is actually the victim, not the offender. “We are concerned that we may have been the victim of deliberate and mercenary contamination for the purpose of making the wheat gluten we purchased appear to have a higher protein content than it did,” he writes in a public letter. Moreover, according to Miller, “[ChemNutra] had no idea that melamine was an issue until being notified by the FDA on March 29. In fact, we had never heard of melamine before.”

If ChemNutra did not know about the melamine, Menu Foods, the Ontario-based pet food manufacturer that bought wheat gluten from ChemNutra, could not have known either. But if Menu Foods is not to blame for the contamination, they are responsible for the extent of the problem. Menu Foods, a company most Americans hadn’t heard of before March, manufactures wet cat and dog food under nearly 100 familiar brand names. These brands are sold in most major grocery and pet food stores around the country.

Incidents like the pet food recall and last year’s spinach contamination reveal just how concentrated — and, therefore, vulnerable — our food supply is. Such incidents also underline the importance of market regulation. It was the operation of the free market — specifically, Chinese animal feed processors seeking higher profits — that resulted in melamine-enhanced wheat gluten. Legally, the U.S. Food and Drug Administration (FDA) is responsible for protecting our food supply from harmful and illegal substances such as melamine. But faced with increasing numbers of food imports and inadequate staff, the FDA is unable to filter out every last potential culprit. Because the short-staffed FDA is unable to conduct necessary inspections, the Center for Science in the Public Interest (CSPI), in a press release from April 24, advocates a temporary ban of grain products from China. “If U.S. pets must serve as the: puppies in the coal mine,” writes CSPI executive director Michael Jacobson, “we urge FDA to heed the warning and take action now to ban grains and other grain products until the Chinese government and producers can guarantee that these imports are free of illegal and dangerous substances.”

Even if Chinese grains were banned for a while, food production in the U.S. would continue to be complexly intertwined with the global food supply. Thus, federal regulatory agencies must step up their efforts to protect consumers from unsafe food, often a direct result of cost cutting by companies eager to increase profits. Current food safety laws are over 100 years old, and according to the CSPI, the FDA inspection staff has shrunk by 15 percent since 2003. To better protect the public from food-borne illnesses, Senator Dick Durbin and Representative Rosa DeLaura have introduced the Safe Food Act that would create a unified food agency with more modern rules. In tandem with better regulations, we should also make it harder for companies like Menu Foods to sell contaminated food to such large swathes of the country, by encouraging a less concentrated food processing and distribution system. After all, what’s the point of healthy profits if we don’t have healthy pets and healthy people?


New York Times web page with links to articles about the pet food recall

Center for Science in the Public Interest press release, urging FDA to ban grain imports from China — April 24, 2007

Letter from the chairman of ChemNutra about the pet food recall

Senator Dick Durban’s bill to establish a Food Safety Administration, introduced February 15, 2007 [pdf]

© 2007 Center for Popular Economics

Econ-Atrocities and Econ-Utopias are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

Where’s your anger? Psychological balm for inequality

A recent article in Psychological Science describes experiments aimed at understanding the psychology of accepting, or not, social inequalities. (If the abstract seems a bit abstract, try this slightly more reader-friendly summary from Science.)

The gist: people who accept justifications for inequality experience less emotional stress when confronted by evidence of the inequality. The more a person believes that there are good reasons for inequality, the less emotional stress they’ll have. (Stress in the form of moral outrage, existential guilt, and support for changing things to help out the disadvantaged.) So acceptance looks to be a self-protection mechanism. Also, showing people stories, propaganda, what-have-you, that feeds ideas of justification (for example, “rags-to-riches” stories) increases their acceptance of the justifications, and so decreases their emotional reaction to evidence of inequality.

As the authors abstract, “system-justifying ideology appears to undercut the [urge to bring about] redistribution of social and economic resources by alleviating moral outrage.”

I guess this helps explain why people are likely to accept that “this is the best of all possible worlds.” Giving a rat’s ass that the world ain’t so great is hard to do. It’s stressful. That’s why those of us who think otherwise have got to help each other keep our spirits up. More potlucks!

Econ-Atrocity: The economics, and the politics, of environmentalism

By Gerald Friedman, CPE Staff Economist

At the time of the first Earth Day, April 22, 1970, the Environmental Movement straddled two approaches to addressing environmental problems, approaches rooted in two alternative theories. Senator Gaylord Nelson of Wisconsin proposed the first Earth Day to “force this issue onto the political agenda,” to promote changed government policy to protect the environment. But many of the 20 million Americans who took part in this first Earth Day were deeply suspicious of organized politics or state action. “Personal salvationists,” they blamed environmental troubles on our weaknesses as individuals. Instead of failed social policy, the enemy was ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.

Twenty seven years later, the Environmental Movement confronts the same division between personal salvation and political action, a division nicely illustrated by a new book, Bill McKibben’s Deep Economy. A prominent environmentalist, McKibben has written a clear attack on much of what ails us; but he misses the underlying cause of these ills and, therefore, his prescription for remedial action is necessarily off. In many ways, a pleasure to read, the book also left me so frustrated that I threatened to throw it against the wall.
Read more

Deep Economy or Undermining Capitalism?

Two weeks ago, after complaining to my daughter about how much I would dislike it, I bought Bill McKibben’s Deep Economy (New York, Henry Holt: 2007) from my local Amherst book store. Already familiar with his ideas from his various other writings (including The End of Nature; Staying Human in an Engineered Age; and various New Yorker articles), I suspected that his new book would be well written, an effective attack on much that ails us as a society, and would miss the point. It is this last that led me to threaten to throw the book against the wall in frustration. And that frustration led me to write this note. (Actually, it was my wife who wanted me to write this so that I would stop ranting to her.)

What could be wrong with a book that criticizes the Bush Administration, big oil, Cargill, Monsanto, and the Economics profession (among many many other villains)? Especially when the author has such good heroes: including farmers’ markets, urban gardens, organic farmers, Heifer International, and the Indian state of Kerala. Among economists, environmentalists like Herman Daly and Bob Costanza get most of the Kudos but a few, like Amartya Sen, make friendly cameo appearances. Individualism is bad; society is productive; and I agree that would all be better off, and the world a lot better off, if we listened to Bill McKibben.

The problem I have is that McKibben not only reads orthodox economists but believes them. For him, the economy is a social system that efficiently translates individual wishes into products; changing economic outcomes, therefore, requires two things: first we must change the technology we use; and, second, we must change individual wishes rather than reorganize the economy. For McKibben, both of these problems go back to the origins of modern economic growth in the British Industrial Revolution of the 18th century. Industrialization, and the economic growth that came after, is, first of all, the product of engineering and better technology: “[I]n 1712, something new finally happened. A British inventor named Thomas Newcomen developed the first practical steam engine” (p. 5). As a result of this technology, “Every action of a modern life burns fossil fuel” (p. 15) and “[t]he link between environmental destruction and wealth is deep and long-standing. Clearly, getting rich means getting dirty” (p. 21). In a nutshell, here is McKibben’s take on the world: we have the wrong technology, we use a technology that relies too heavily on fossil fuels, and this links economic growth with environmental degradation in a way that insures that economic growth will hurt the world.

Thus far, McKibben’s critique would be familiar to readers of Amory Lovins (cited in the book) and others. This argument may be simply stated as follows: “We’re in trouble because we, accidentally, chose the wrong technology and now we need to step back and change.” But McKibben makes a broader social critique than this by adding a second element to our social malady, also dating back to the beginning of the modern era, and also an accident. Until 500 years ago, McKibben argues, individuals were embedded in communities “as a small part of the Great Chain of Being” (p. 95). “The story of the last five hundred years,” he adds, “is the story of continual emancipation” (p. 95). He recognizes that many factors dissolved this ordered world, but, a good Weberian, he highlights one: Protestantism. Like fossil fuel-powered economic growth, individualism was at first a good thing; emancipatory, it gave space for individual expression and initiative. But it has gone too far and now “we’ve been overliberated” (p. 128).

There is so much here that is familiar, and so much that rings true and even comfortable, that I expect McKibben’s book will sell well. But, I fear that he is telling us what we want to hear rather than what we need. For starters, he is wrong about the British Industrial Revolution. Rather than steam engines, the signal change there was the creation of factories, almost always operating without steam power, where employers, “capitalists,” were able to regulate the work hours of their workers. Rather than an engineering problem, the Industrial Revolution was a solution to a social problem, the problem that people, workers, did not want to work as long or as hard as their bosses wanted. Factory production allowed capitalists to increase their profits by forcing their wage workers to labor harder or else be fired (and denied access to the means of production).

Instead of seeing the economy as a system that uses technology to transmute individual wishes into economic outputs, it is a system of profit creation, producing surplus value rather than use value. This explains many of the accidents and mysteries McKibben identifies, the odd mistakes and errors in judgement, that have led to our current malaise. We subsidize the burning of fossil fuels because of the political influence of fuel and automobile companies looking to profit. Our agricultural research emphasizes large-scale, oil-intensive technologies because these favor agribusiness profits. State policy promotes extensive housing development because these projects favor corporate profits in real-estate, construction, furniture, and transportation. State policy favors private consumption of marketable commodities rather than communal use of public goods not just to raise the Gross Domestic Product but because corporations profit from private consumption. By contrast, state policy neglects, even discourages, much that enhances welfare and makes life better for people because corporations have not figured out a way to squeeze a profit from them. Home production, community building, and the development of social capital are all shunned not only because they do not enrich any section of corporate America, but because the strengthening of communities risks promoting democratic forces who would restrict corporate profit-making in the name of popular welfare.

Yes, McKibben is absolutely right that we use the wrong technologies and we value individual action over communal interests. But the problem is not in the technology, nor in any excessive desire for liberty and personal autonomy. Nor is it in our desire for economic growth where we provide the opportunity for a better life for everyone. The problem is that we grow in the wrong way because that is more profitable for the corporations who dominate our social policy.

So what is to be done? Blaming technology and individualism, McKibben urges us to change our thoughts and revise our expectations of the world with the promise that this will save the planet and even may eventually make us better off. Like the Garrisonian abolitionists of the 19th century, he would rely on “moral suasion”; after we change our behavior and rebuild our communities “then our politics will start to change as well” (p. 175). If we see capitalism and capitalist control of state policy as the root of our environmental and social maladies then we should reverse this ordering. Instead of personal change opening the door to political action, we need political action that will end the subsidization of environmental and community destruction so that we can save our planet and rebuild our communities.

Gerald Friedman
Professor of Economics
University of Massachusetts at Amherst

Bran scans show economy is unfair

Scientific American is reporting on a an article in the journal Neuron that describes brain scanning experiments intended to see if poorer people react differently than richer people to opportunities to gain a little extra money.

The microeconomic law of diminishing marginal utility states that while accumulating a good—pretzels, pencils, nickels, whatever—each successive unit of that good will be less satisfying to acquire than the one before it. Finding a shiny quarter on the street is a real thrill. But, if you are carrying around a bag of coins, acquiring another one does not seem nearly as exciting. In fact, would you even bother to pick it up?

That hesitation is what researchers at the University of Cambridge in England were banking on when they designed a study to see if the haves catch on more slowly than the have-nots when it comes to reward-based learning. Reporting in the current issue of Neuron, the scientists reveal that when a small sum of money is on the line, poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust.
Read more

Econ-Atrocity: A Lesson Taught By Honeybees

By Hasan Tekguc

What are honeybees, the favorite economic textbook example of a positive externality, doing nowadays? The short answer is: they are vanishing in droves, in billions.

Let’s take a step back and see what economics textbooks tell us. In many economics textbooks and introductory classes honeybees are referred to as the perfect example of a positive externality. A positive externality is the benefit from economic activity that falls on a party ‘external’ to the activity. Economics textbooks and professors explain that when honeybees visit flower after flower to collect nectar, they help flowers to pollinate. However, honeybee keepers are not paid by orchard owners for honeybees’ services and hence the pollination service is underprovided. The market-based solution offered in textbooks is to expand the market to include the positive externalities; in plain language if the orchard owners start to pay the beekeepers for bees’ services, the beekeepers will keep more honeybees, more flowers will be pollinated, and the trees will bear more fruit.
Read more

Wow. Supreme Court: “EPA can regulate carbon emissions”

What will happen? Maybe not much. What could happen? Something big.

Top Court: EPA Can Control Emissions

By MARK SHERMAN Associated Press Writer
© 2007 The Associated Press

WASHINGTON — The Supreme Court ordered the federal government on Monday to take a fresh look at regulating carbon dioxide emissions from cars, a rebuke to Bush administration policy on global warming.

In a 5-4 decision, the court said the Clean Air Act gives the Environmental Protection Agency the authority to regulate emissions of carbon dioxide and other greenhouse gases from cars.

Greenhouse gases are air pollutants under the landmark environmental law, Justice John Paul Stevens said in his majority opinion.


And in quick response, words to the wise from the auto industry:

Automakers urge economy-wide approach to global warming
POSTED: 12:56 p.m. EDT, April 2, 2007

WASHINGTON (AP) — Automakers called for an economy-wide approach to global warming in reaction to a Supreme Court decision Monday that could give the government the authority to regulate the emissions of carbon dioxide and greenhouse gases from cars.

The Alliance of Automobile Manufacturers, an industry trade group representing General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Toyota Motor Corp. and five others, said in a statement that “there needs to be a national, federal, economy-wide approach to addressing greenhouse gases.”

Of course, don’t expect things to work out all rosy…. The auto industry plans to be the first among equals at the negotiating table:

Dave McCurdy, the alliance’s president and chief executive, said automakers would work with lawmakers and federal agencies to help develop a national approach.


But even still, the idea is right. Cap and trade? A carbon tax? Good old fashioned rationing? Banning the worst offenders (as in, no new fossil fuel powered electricity plants, followed by a phase-out of existing plants; mandatory efficient building materials and techniques; minimal acceptable auto fuel efficiency; etc)? There are lots of options for economy wide approaches to dealing with carbon pollution, and no time like the present to start trying them out.

Having said that, what the Supreme Court has ruled looks to be restricted to auto emissions (thus the auto industry’s insistence on economy-wide action, so they aren’t made the only ones to deal with the greenhouse gas problem). This is based on

§202(a)(1) of the Clean Air Act, which requires that the EPA”shall by regulation prescribe . . . standards applicable to the emission of any air pollutant from any class . . . of new motor vehicles . . . which in [the EPA Administrator’s] judgment cause[s], or contrib-ute[s] to, air pollution . . . reasonably . . . anticipated to endangerpublic health or welfare,” 42 U. S. C. §7521(a)(1).

Become an expert: read the Court’s actual decision in “Massachusetts et al v. Environmental Protection Agency et al.” [pdf]

P.S.–Don’t confuse this decision with the other environmental decision also released today, “Environmental Defense v. Duke Energy Corp.” That one rules that the EPA should be more rigorous in enforcing the Clean Air Act when power companies alter existing plants to ensure that no more pollution is released than before the alteration.

Report from CBPP on taxing below-poverty-line families

This just came out a couple days ago. It even crossed the desk of Rush Limbaugh, who used it as an opportunity to recommend increasing taxes on those below the poverty line. Rush, egalitarian that he is, feels it is unfair for people with low-incomes to avoid sharing equally in the funding of the state. Har!

By Jason Levitis


Poor families in many states face substantial state income tax liability for the 2006 tax year. In 19 of the 42 states that levy income taxes, two-parent families of four with incomes below the federal poverty line are liable for income tax. In 15 of the 42 states, poor single-parent families of three pay income tax. And 29 of these states collect taxes from families of four with incomes just above the poverty line.

Some states levy income tax on working families in severe poverty. Six states — Alabama, Hawaii, Indiana, Michigan, Montana, and West Virginia — tax the income of two-parent families of four earning less than three-quarters of the poverty line such families. All of these states except Indiana also tax the income of one-parent families of three earning less than three-quarters of the poverty line.

In some states, families living in poverty face income tax bills of several hundred dollars. A two-parent family of four in Alabama with income at the poverty line owes $573 in income tax, while such a family in Hawaii owes $546, in Arkansas $427, and in West Virginia $406. Such amounts can make a big difference to a family struggling to escape poverty. Other states levying tax of more than $200 on families with poverty-level incomes include Indiana, Iowa, Michigan, Montana, New Jersey, and Oregon. In 2006, the federal poverty line for a family of four was $20,615, and the line for a family of three was $16,079.

States’ tax treatment of low-income families for 2006 has improved in some states since 2005 but gotten worse in others. Between 2005 and 2006, Oklahoma and Oregon reduced the income tax liability of poor families, Delaware entirely stopped taxing the incomes of poor families of three, and Virginia entirely stopped taxing the income of poor families of four. But four other states increased their taxes on poor families by 25 percent or more, and New Jersey began taxing poor families of four for the first time since 1998. The reason for these tax increases is that provisions designed to protect low-income families from taxation — including standard deductions, personal exemptions and low-income credits — were not increased to keep up with inflation. Overall, there was virtually no change this year in the number of states levying income taxes on families with incomes below the poverty line.

The outlook for the future is somewhat better. A number of states have recently enacted significant reforms that will reduce taxes on low-income families. Between 2007 and 2010, Alabama, Arkansas, Hawaii, Michigan, Oklahoma, Oregon, and West Virginia each will improve their income tax treatment of the poor. In Arkansas, Michigan, Oklahoma, and West Virginia, the changes will wipe out or dramatically reduce tax liability that now costs poor families hundreds of dollars. Overall, the number of states taxing poor families of four could decline from 19 to 16. And quite a few other states are currently considering similar measures.

Taxing the incomes of working-poor families runs counter to the efforts of policymakers across the political spectrum to help families work their way out of poverty. The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to become economically self-sufficient. In other words, relieving state income taxes on poor families can make a meaningful contribution toward “making work pay.”

States seeking to reduce or eliminate income taxes on low-income families can choose from an array of mechanisms to do so. These mechanisms include state Earned Income Tax Credits (EITCs) and other low-income tax credits, no-tax floors, and personal exemptions and standard deductions that are adequate to shield poverty-level income from taxation. Some states go beyond exempting poor families from income tax by making their EITCs or other low-income credits refundable. These policies provide a substantial income supplement to families struggling to escape poverty, but they are relatively inexpensive to states, since these families have little income to tax.

Despite some progress, there remains much to do before state income taxes adequately protect and assist families working to escape poverty.

« Older Entries Recent Entries »